So the 3rd January is somewhat a big deal in the crypto world. Firstly it is the celebration of the genesis block on Bitcoin. But we are not here to talk about that. We are here to talk about something else which may turn the market on its head…
What is Proof of Keys and why does it matter?
Proof of Keys is a campaign launched by Trace Mayer by requesting crypto users to withdraw their funds from third-party controlled wallets, like the ones that crypto exchanges are offering. (simple hot wallets that can easily mix things up)
Instead of keeping their funds on the exchange’s platform, users are advised to store them somewhere where they will hold the private key themselves (ledgers, and privately own desktop wallets).
The intention behind it is to check the legitimacy of the third-party controlled wallets and test their solvency.
This event has already started earlier today, January 3rd, and it is expected to become an annual occurrence (we shall see if this does actually take off). The movement came to be as a way of confirming that crypto users are actually in charge, and in real possession, of their coins. In other words, exchange customers wish to get proof that their money is there.
As crypto traders and investors already know, centralized exchanges offer users the possibility to store funds on users’ behalf. Taking advantage of this offer is generally considered to be a bad move, as many issues can endanger users’ funds.
Hacking is one of these big issues, and in the history of crypto, there were already numerous big hacks that resulted in the theft of millions of dollars in crypto; for example, the collapse of MTGox springs to mind in 2014 but also some low key hacks in 2018 resulted in some funds going missing.
Another big problem is the possibility that the exchange doesn’t own enough money of its own to pay off all of its traders and investors. (This is a huge sore point and could become a real talking point when you take into consideration the potential faking of trading volume) Simply put, the movement behind Proof of Keys believes that users should cash out of centralized exchanges as a way of determining that the exchange is not scamming users and using their money.
The movement is quite similar to a bank run, which is necessarily an event where bank customers all come and request to be cashed out at the same time. This is one of the causes of the infamous Great Depression that happened around 90 years ago. Hopefully, we don’t see the big crypto crash of 2019. It’s unlikely we are halfway through the day at the time of writing this!
After Bitcoin’s launch ten years ago, many investors started turning to crypto, hoping that the possibility of not being in charge of their funds will go away with crypto. However, over the years, many of the centralized exchanges have become just as bad as the banks, which is why the movement is now deemed necessary to ensure that the situation is not as bad as many believe it to be.
The main advise that you should be following, and always following is always take ownership of the private keys to your own crypto. One thing that centralized exchanges don’t allow, is your ownership to your keys for your tradable assets. This is something that will be a pain for years to come.
Will The Crypto Market React To Proof Of Keys Event.
As mentioned above not much has happened in the reaction, except for one thing. HitBTC again spitting the dummy out (freezing peoples accounts according to some Reddit users) and actual people not really caring much about it because their crypto is already off the exchange.
One thing though this allows the crypto community to come together and celebrate the 10th anniversary of Bitcoin’s Genesis Block being mined in a way that has reminded everyone why cryptos exist in the first place. Also, it can serve as a great way to test the scalability of blockchains.
Keep updated for more news over on our dedicated page.